FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 28, 1998
Commission file number 0-6953
LILLY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0471010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 SOUTH WEST STREET
INDIANAPOLIS, INDIANA 46225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 687-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. Number of shares
outstanding at March 31, 1998:
Class A Common 22,714,000
Class B Common 418,000
Page 1 of 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended
February 28 February 28
1998 1997
-------------------------
Net sales $ 143,334 $ 142,160
Costs and expenses
Cost of products sold 89,903 90,112
Selling, general and administrative 34,286 34,001
Research and development 5,366 4,595
--------- ---------
129,555 128,708
--------- ---------
OPERATING INCOME 13,779 13,452
Sundry income (expense) (67) 150
Interest expense, net (4,534) (5,040)
--------- ---------
INCOME BEFORE INCOME TAXES 9,178 8,562
Income Taxes 4,038 3,852
--------- ---------
NET INCOME $ 5,140 $ 4,710
========= =========
Cash dividends per share $ 0.08 $ 0.08
Net income per share (Note B)
Basic $ 0.22 $ 0.21
Diluted $ 0.22 $ 0.20
See notes to consolidated condensed financial statements.
Page 2 of 11
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
February 28 November 30
1998 1997
--------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,617 $ 10,079
Accounts receivable, less allowances
for doubtful accounts (2/28/98, $2,355;
11/30/97, $2,139 80,862 80,011
Inventories (Note C) 47,157 45,704
Other 6,869 10,880
--------- ---------
TOTAL CURRENT ASSETS 147,505 146,674
OTHER ASSETS 20,111 21,326
INTANGIBLE ASSETS 249,548 250,956
PROPERTY AND EQUIPMENT
Land, buildings and equipment 149,373 137,088
Allowances for depreciation (deduction) (56,540) (54,249)
--------- ---------
92,833 82,839
--------- ---------
$ 509,997 $ 501,795
========= =========
See notes to consolidated condensed financial statements.
Page 3 of 11
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
February 28 November 30
1998 1997
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 59,025 $ 60,510
Other 25,447 34,038
--------- ---------
TOTAL CURRENT LIABILITIES 84,472 94,548
LONG-TERM DEBT 234,000 224,171
OTHER LIABILITIES 45,516 40,637
SHAREHOLDERS' EQUITY Capital stock:
Class A (limited voting) 15,390 15,375
Class B (voting) 300 300
Additional capital 80,414 79,417
Retained earnings 87,035 83,745
Currency translation adjustments (2,763) (2,254)
Cost of capital stock in treasury
(deduction) (34,367) (34,144)
--------- ---------
146,009 142,439
--------- ---------
$ 509,997 $ 501,795
========= =========
See notes to consolidated condensed financial statements.
Page 4 of 11
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended
February 28 February 28
1998 1997
-------------------------
OPERATING ACTIVITIES
Net income $ 5,140 $ 4,710
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,460 2,211
Amortization of intangibles 2,546 2,906
Changes in operating assets and liabilities net
of effects from acquired business:
Accounts receivable 755 (2,159)
Inventories 1,065 (836)
Accounts payable and accrued expenses (11,504) (6,163)
Sundry 4,852 3,077
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,314 3,746
INVESTING ACTIVITIES
Purchases of property and equipment (2,455) (3,556)
Payment for acquired business (11,253) 0
Sundry 2,164 3,551
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (11,544) (5)
FINANCING ACTIVITIES
Dividends paid (1,850) (1,819)
Proceeds from short-term and long-term borrowings 11,000 0
Principal payments on short-term and long-term borrowings (1,171) (5,000)
Sundry 789 660
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 8,768 (6,159)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,538 (2,418)
Cash and cash equivalents at beginning of year 10,079 6,790
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,617 $ 4,372
======== ========
See notes to consolidated condensed financial statements.
Page 5 of 11
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
FEBRUARY 28, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended November 30, 1997.
NOTE B--NET INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" for the first quarter ended February 28, 1998. Share and
per share amounts shown for periods prior to adoption have been restated to
conform to the requirements of SFAS No. 128.
Basic and diluted net income per share are computed by dividing net income as
reported by the average number of shares outstanding as follows (in thousands):
Three Months Ended
February 28 February 28
1998 1997
--------------------------
Basic
Weighted-average common shares
outstanding 23,116 22,750
====== ======
Diluted
Weighted-average common shares
outstanding 23,116 22,750
Dilutive effect of stock options 258 550
------ ------
Average common shares outstanding
assuming dilution 23,374 23,300
====== ======
Page 6 of 11
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows (in
thousands):
February 28 November 30
1998 1997
--------------------------
Finished products $27,079 $26,361
Raw materials 27,754 27,019
------- -------
54,833 53,380
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 7,676 7,676
------- -------
$47,157 $45,704
======= =======
The Company uses the LIFO method in inventory valuation for approximately 68% of
inventories where an actual valuation can be made only at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim LIFO
calculations must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Since these are subject to many forces
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation. The Company estimates the annual adjustment for LIFO
and allocates it to quarters based on actual inflation experienced in a quarter
as it relates to anticipated inflation for the year.
Page 7 of 11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Sales and net income per share were the highest of any first quarter in the
Company's history. Sales for the quarter ended February 28, 1998 were a record
$143.3 million compared with $142.2 million for the same quarter last year. The
Company's base revenue was up slightly as sales from the German acquisition were
offset by unfavorable foreign currency translation and the divestment of the
retail paint business.
Diluted net income per share was 22 cents for the 1998 first quarter, a 10
percent increase from last year's 20 cents. Basic net income per share was also
22 cents. This result was achieved despite a $771,000 increase in Research and
Development expense. The increase in R&D is attributable to the German
acquisition, continued emphasis on new and improved products, and the pursuit of
new markets.
Interest expense was down $506,000 for the quarter, reflecting lower interest
rates and debt levels. Total debt of $234 million is down $22.6 million from
February, 1997. The effective tax rate is 44%, down from 45% last year. Foreign
tax planning initiatives are the primary reason for the improvement.
Historically, the first quarter is the lowest volume quarter due in part to
holiday shutdowns. With recent marketplace initiatives and continued cost
controls, 1998 should be another successful year.
The Board of Directors declared a quarterly cash dividend of eight cents per
common share, payable July 1, 1998, to shareholders of record at the close of
business on June 10, 1998. This marks the Company's 237th consecutive quarterly
dividend.
Page 8 of 11
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
The following exhibit is included herein:
EXHIBIT 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended February 28, 1998.
Note: All other item numbers under this section are not applicable.
Page 9 of 11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LILLY INDUSTRIES, INC. (Registrant)
April 14, 1998
/s/ Douglas W. Huemme
--------------------------------
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
April 14, 1998
/s/ John C. Elbin
--------------------------------
John C. Elbin
Vice President,
Chief Financial Officer
and Secretary
Page 10 of 11